James Gard: Deliveroo is making its stock of the week debut. Shares are up more than 40% this year and rose again after the half-year results. Do we have a turnaround situation here and is it sustainable? Let’s look at the key numbers. One of the biggest problems investors have with food delivery firms is their lack of profitability; in Deliveroo’s case it’s getting there, with first half losses narrowing from £153 million to £82 million. Most companies these days would prefer you to look instead at “adjusted EBITDA” and on that measure Deliveroo made a profit for the first half, against a loss last year. It has also upgraded its profits forecasts for the full year. Rival Just Eat Takeaway has reported a similar pattern of adjusted losses in 2022 followed by profits in 2023. What about other metrics?
Deliveroo’s revenue and gross profit are higher than last year. There’s been a big improvement in free cash flow since last year but it’s still negative. Orders are lower year on year but “gross transaction value” is up, so people are spending more each time. What’s got investors excited is talk of a possible dividend worth £250 million, a move unthinkable for much of the company’s public life. This at least answers some of the critics of “jam tomorrow” stocks like this; a dividend will provide “jam today”.
Shares are at roughly £1.25, and Morningstar analysts say they’re worth £2.15. But investors like me who bought at the IPO are still nursing heavy paper losses. I’m glad I didn’t sell the shares below one pound but what realistic chance have they got of returning to their float price of £3.90? At that price Deliveroo would be worth as much as Ocado. Our analysts think that the company could make a tasty takeover target and that would no doubt give the shares a lift. In the meantime I’m going to look forward to the dividend and hope the company make its first profit soon. For Morningstar I’m James Gard.
